Working Paper Series no. 42: Volume Effect, Volatility, and International Transmission between Stock Markets (in French)

Abstract

Using daily data covering the 1988-1995 period, this paper checks the effects of three kinds of determinants on the main stock market indices of the G5: interactions between return and volatility, international transmission mechanisms and impact of trading volumes. The non-significance of expected volatility in return equation can be explained by the influence of trading volumes on returns. On the other hand, asymmetric effects (from non-expected return to volatility) are very high, especially for Dow Jones, DAX and Nikkei. International transmission mechanisms are very clear-cut for return equations (in particular, from Dow Jones to other stock market indices), but much more contrasted for volatility equations. The trading volumes have marked effects on all the markets, both in the return and in the volatility equations.

Sanvi Avouyi-Dovi, Eric Jondeau and Charles Lai Tong
April 1997

Keywords : Stock markets, Volatility, Trading volume, International transmission